Good morning, everyone. This is Brad Vizi, Executive Chairman of RCM Technologies. Welcome to the RCM Technologies 2020 Third Quarter Earnings Call. I'm joined today by Kevin Miller, our Chief Financial Officer. Kevin will begin with a legal disclaimer, and then I will summarize the operating results for each of our business units before opening call for questions. Kevin?

Good morning, everyone. Our presentation in this call will contain forward-looking statements. The information contained in the forward-looking statements is based on our beliefs, estimates and assumptions and information currently available to us. And these matters may materially change in the future. Many of these beliefs, estimates and assumptions are subject to rapid changes. For more information on our forward-looking statements and the risks, uncertainties and other factors to which they are subject, please see the periodic reports on Forms 10-K, 10-Q, and 8-K that we filed with the SEC, as well as our press releases that we issue from time to time. Thank you.

Thanks, Kevin. Our results continue to be impacted by COVID-19. However, we believe that we have responded well, and will emerge from the crisis a better company. In May, we outlined a plan, where we would surgically cut non-critical SG&A expenses. Focus heavily on utilization and gross margin. While at the same time we're working to maximize cash flow from operations. We continue to be pleased with the results on all three fronts. Before discussing our segments, I want to highlight a few areas of financial performance. We generated $6 million in cash flow from operations in the third quarter of 2020. We generated $22.8 million in cash flow from operations during the second and third quarters of 2020 combined. Since the end of 2019, robust cash flow from operations has allowed us to reduce our net debt by 62% or $32.9 million to $12.5 million. The $12.5 million for the year is after retiring the $2.2 million note payable in the third quarter. In the second quarter, we incurred the note payable to purchase 1.8 million treasury shares at an attractive price. Our strong cash flow allowed us to renegotiate our financial covenants and our credit line with Citizens Bank during a challenging economic environment. We are pleased with the flexibility the debt reduction and revised covenants afford RCM as we move forward. COVID continues to have the most significant impact on our health care staffing segment. As you know, our healthcare segment has historically derived much of its revenue from school systems. Many school systems nationwide, including most of the company's school clients, close for in person instruction in March. Some have reopened partially with the combination of in-person and virtual classes. While some have remained entirely virtual. The company has limited information on when and in what…

Our first question will come from Andrew Gordon.

Congrats on navigating this difficult environment. My biggest question for you is around the, what you've called meaningful new contract wins. And I think this kind of goal has been mentioned on calls for the last several quarters. So it's encouraging to hear that they have been finalized. But I don't know if we've ever been given very much color on the relative magnitude. The word meaningful suggests it's meaningful, so what does that, how do you define that? What can you tell us that we don't know so far about these contract wins?

Sure. I could talk a little bit about that. I mean generally, as you know, we generally don't discuss specific contract wins. The biggest reason for that is a lot of our clients just don't want us to. So we have to be pretty careful about discussing specific wins and specific projects, which when we win something that we consider material and the client allows us to announce it, or if we feel like we've won something that's a little bit unique and interesting and something we really want the world to know about and the client approves it, we will sometimes announce contracts. But we're pretty careful about announcing too many individual contracts.

Right. I guess I'm asking you to define the materiality threshold.

Sure. Well, I don't have a concrete answer for you. I'd just tell you that, we feel like our backlog is improved over this time this year. I would not say that it is much higher than where it was last year. Where I think that we're pretty excited is we have some pretty nice sized projects in our pipeline. Several that are quite large that we think have a good probability of hitting next year. So and when we talk about contracts and backlog, we're typically talking about our Engineering group because that's where we have big projects that were sometimes can take 6, 9, 36 months to get it from the time we start talking about the client to actually closing it. So we have some pretty nice projects heading into next year. And we believe that the current run rate we're on right now, about $15 million a quarter, is where we'll be early next year. What I can tell you is that assuming a few of these contracts hit that we think have a pretty high probability of getting, I think we could start to see a much better run rate on a quarterly basis sometime next year. That's all I'm prepared to discuss at this time. And I really can't give you a sort of exactly how much is in our pipeline and all that. We're pretty careful. Go ahead.

Okay. I'm trying to, I understand that there are confidentiality obligations you have. But also for your investor base, when you refer to ongoing wins or things in your pipeline, we have to track them. And as I recall, what was in your pipeline as of a couple of quarters ago was that calcine chloride plant in Michigan. And then that was by my, I mean, it's public record that I believe that that's all continuing to be on track. And I don't know when, I believe you commented at the beginning of '21. So you're saying the $15 million quarterly run rate is something we could continue to expect into next year. I guess does that include benefit from your participation in the design or whatever aspects you're controlling of that process? Does that included a benefit from that because that was, I believe, portrayed as a large project as well.

Yes. That is a pretty large project. Right now, we think it's going to be assuming, it still hasn't closed, which is kind of the business we're in. Sometimes these projects take a lot longer than we think. We believe that project is going to close. It's about maybe $6 million or so, of which a good portion of that would be recognized next year if we win it. When I talk about a $15 million run rate, that's comprised of a certain amount of that is backlog, projects that we've booked that were 99% sure are going to finish because sometimes they do get delayed or sometimes they get stopped even when we've signed a contract up. And a portion of that is like a weighted probability. That project is in our forecast for next year. But if it comes in at 100% as opposed to say, 80% that, in theory, should boost our revenue for next year above where our run rate is right now. So that project has not closed. We believe it has a very good chance of closing between now and hopefully in the end of the year or early next year, but we'll see. That's a project we've been working on for a couple of years.

[Operator Instructions] Our next question will come from Bill Sutherland.

On the health care front, a couple of things. Can you talk about the three main customers just in terms of how you're performing under in each, whether it's the hybrid or all virtual?

Sure. New York and Hawaii are both under hybrid models right now. And it's different in schools. Even though there may be some sort of announced format, when these schools announced their formats, that's sort of the general guideline, but individual schools may or may not be following that. And then the other thing is that even if kids are able to go to school two or three days a week, parents have the option of having their kids go 100% virtual. So if our kids are 100% virtual, that impacts our revenue in addition to having a hybrid model, right? So those two are hybrid. And Chicago right now is fully virtual. They've made some announcements that they'd like to go to hybrid sometime in November, but we're pretty skeptical that that's going to happen between now and the end of the year, but that's just our own speculation.

And as far as what you guys are able to do in this situation, I mean, I see that the revenues for the quarter were $3.9 million. Like what portion of that was just accomplished by telehealth for you all?

A pretty small percentage of that, Bill. We're not doing a ton of telehealth. We think that, that could potentially be a very big offering for us in the future, and we're working on refining that offering. And in fact, we recently hired a new salesperson to sell that. And we've never had a dedicated telehealth salesperson before. So that's an area that we're clearly focused on for future growth because we think it's a good space to be in now. But we think it's going to be, we think that space is going to have a lot of legs even when schools are back in session five days a week. But it's like

Do we convert, to some degree, your current contracts to just --.

Yes, it is. But recall that therapy is probably about 15% of our total school business roughly. So it's the smallest of the three. If I put RBTs and power in the same, entire professionals in the same bucket, and then if we compare that to nursing and power/RBTs, therapy is the smallest one. But it's still meaningful. And we love that work, and we're really, really good at it.

Are you, I think I lost the call?

No, you're still on though?

Are you talking, Kevin?

I am. Can you hear me?

All right. Well, I can't hear it.

Okay. We have no more questions in the queue.

No more questions?

Okay. All right. Thank you for attending RCM's third quarter conference call. We look forward to our next update in 2021.

This concludes your call. You may now disconnect.